The OC Blog Back Issues Our Mission Contact Us Masthead
Sudsy Wants You to Join the Oregon Commentator

Judge to Citizenry: Shut up already. Cato to Gov. Teddy: You stink!

While I am waiting for this data to finish appending itself to an SQL table, and because it is my birthday, I have decided to make you endure a longish blog post. The two subjects are quite nearly unrelated, but both drive me mad. I do not like being mad on my birthday, I’d rather be drunk, but I guess this will have to do.

“We, meaning Congress, Hate Liberty”

The Blogfather has posted a link to this fascinating interview with a member of the FEC.

Under the auspicies of the deviant affront to liberty that is McCain-Feingold, Judge Colleen Kollar-Kotelly has ruled that communication over the internet that is related to campaigns must be regulated by the FEC. That’s right folks, unless they decide to give bloggers press exemption the political speech of individual US citizens will be subject to regulation and fine by an arm of the US Government. Whatever happened to “Congress shall make no law…”?

Despite supporters’ protestations to the contrary, McCain-Feingold was never about getting the money out of politics. The law is about one thing, and one thing only: protecting incumbent members of government from competition from the dullards that compose the American body politic. Between McCain-Feingold and the odiousness of gerrymandering in the House of Representatives, which isn’t new by the way, Congress has removed itself almost completely from accountability to those from whom its power is derived. Then, of course, we have Senators arguing that the internet must be regulated:

Senators McCain and Feingold have argued that we have to regulate the Internet, that we have to regulate e-mail. They sued us in court over this and they won.

Persons with the attitude that speech over the internet must certainly be regulated have no place in American government. It’s a sad day when both sides of the aisle are more concerned about protecting their jobs than performing those jobs correctly. It has, apparently, been a sad day for a very long time.

Uncle Teddy: [Via The Mises Blog

The CATO Institute’s report card on state governors is out. Oregon’s Governor Ted Kulongoski scores a 58 and earnes a grade of D. Only 20 governors scored worse than Teddy. I am not surprised by this, and Bret will likely still be angry at me for throwing my vote away on Tom Cox during the last cycle, but I doubt Mannix would’ve been any better.

Oregon’s budgetary structure is designed specifically with heavy taxation in mind. It’s been argued by smart folks that Oregon is not a high-tax state, and that may be nominally true, but the heavy reliance on the personal income tax for state revenue begs to be abused. The cyclical nature of income tax receipts leads the state to a boom-bust spending cycle and major budgetary shortfalls when incomes cycle downward. Of course, when revenues are up the massive givaways that are so ingrained in the Oregon way of life and spending on other public projects skyrockets. When revenues fall, and they always do, those programs are nigh-on impossible to cut and lead to proposals for “temporary” tax increases or surcharges like we’ve seen in the last few cycles. This is an argument I’ve made before.

In short I think Kulongoski’s very poor grade is endemic* of a wider problem in Oregon politics that is unlikely to be solved simply by changing the governor. Oregon needs to shift away from the personal income tax as a primary source of revenue, it needs to eliminate state programs that are completely redundant, and it needs to get rid of the tax-kicker program to institute a rainy-day fund. Is any of this likely to happen? You decide, but it’s been said that native Oregonians are born screaming: “NO SALES TAX, NO SELF-SERVE GAS!”, so I wouldn’t suggest getting one’s hopes up.

*fixed for Dan, now it won’t go having any little baby spelling errors. My job, while making me smarter at banking, is turning me into a real dunce at writing.

  1. Timothy says:

    I hate you. Hate. You.

  2. Melissa says:

    That’s Ms. Miss to you, Timmy.

  3. Timothy says:

    I will cut all of you, so much.

  4. Clint T. says:

    Apparently even Mr. Greenspan agrees to some degree with Timmy. If you read between the lines you can even see where the rationale has some correlation.,1,3024213.story?ctrack=2&cset=true

  5. Andy says:

    He he. The other state that doesn’t have a sales tax is new hampshire 😉 The “live free or die” state.

  6. Timothy says:

    You’re setting yourself up for a cuttening too, miss.

  7. Melissa says:

    And, Timmy is given to cutting people. Cut, Timmy, cut!

  8. Timothy says:

    Yeah, I noticed that, don’t worry. He shall perish. He. Shall perish. Andy: don’t call me Timmy, or you shall surely be cast down where there is weeping and gnashing of teeth.

  9. Anonymous says:

    You just let Andy get away with calling you Timmy…..

  10. Timothy says:

    I find Austrianism fascinating, but they really don’t teach its outlook in most departments. You have to go to an Austrian school like GMU to get it, which is unfortunate.

    IS/LM is a severely limited outlook, I agree. It’s useful in certain situations, but overall RBC is probably my pick for “best and most usable macro model”. Monetarism doesn’t have involuntary unemployment, which is craziness.

    The reason a sales tax is less cyclical is autonomous spending. Every economist (real economist, not econo-lite like me) I’ve talked to has made that claim. I’m inclined to agree for the reasons I’ve stated above.

    The example about cars is the intuition behind an income tax being less distortionary than an equal-yield sales tax: an income tax is essentially functionally equivalent to a sales tax on all goods. Shifts in the budget constraint rather than moving the prices of goods around. However, at the margin consumers are going to have less disposable income under an income tax regime. Remember that I’m proposing a sales tax as an replacement for rather than an addition to an income tax. The average consumer is going to see a rise in his/her disposable income.

    Tourism is elastic with respect to travel costs and individual income, but I doubt that the sales tax rate has anything to do with it. As all but one other state have sales tax and pretty much every other country has one, I can’t imagine that’s a major factor. Plus Oregon already has the hotel tax, which is pretty damn high.

    I’ll see your RBC model and raise you two Laffer curves :-). Anyway, off to work with me, have a good one.

  11. Andy says:

    LoL, I didn’t read your posts clearly enough and I missed the Austrian swipe Timmy 😉

    The Austrians say that the business cycle is caused by government intervention. I believe that it’s similar to the RBC model somewhat.
    What also exacerbates the cycle is that the government created fiat money which means that consumers will always get screwed from inflation from government intervention ploys and that since the free market yields the max utility, any deviation from the result will yield inefficiencies.

    If you read “Man, Economy, State,” Rothbard makes quite the logical argument for the prohibition of government as much as possible. On a micro level they are dead on I think. The problem with economics isn’t the micro, is the macro policies that everyone has a say in, without building the micro foundations. IS/LM died about 25 years ago..sorry to say 😉

    With the advent of the internet, it’s gonig to be increasingly harder for the gov to pull the fleece over the sheeps eyes..

    Ooo one more thing, turists don’t buy big ticket items. Turism is highly elastic here so placing a sales tax could possibly hurt the state a lot more than whatever measily turist dollars is brought in.

  12. Andy says:

    The only thing a sales tax does (to the consumer) is increase the price of the good. If you’re buying big ticket items, supposedly what the sales tax will get most of its revenue from, persons that would have bought the 10k car would no longer, and they would settle for the 9k car. I believe that fluctuations would be greater with a sales tax becuase as a recession hits, the so called cause of it stems from consumption, and not income.
    The persons most affected by recessions are those on the margin of being hired, not professionals or salaried workers. Those on the lower end of the spectrum, the hourly wage earners, if they lose their job, will be faced with out an income, yet will still be taxed. Becuase of the progressive tax system, if those who lose thier jobs aren’t faced with an income tax nor a sales tax. Typically income tax for the poverty level is negative, meaning they get more money back than they pay, i.e. redistribution of wealth.

    A sales tax is much more equitible than a progressive income tax is, and less stable, from the states view on stability. Those who are taxed on thier incomes the most in the state have very stable employment. If I were a socialist, I’d do exactly what the state is doing now:
    1)Progressive payroll tax
    2)High property taxes
    3)Income taxes
    4)Tax everything with a low elasticity(cigs, booze, telephones, internet, gas), especially those things perscribed by law with the threat of violence if insubordnate. (i.e. car registrations, titles, various other fees and permits.)


  13. Timothy says:

    Tyler: mail-order bride sounds great, just make sure Cohen hasn’t gotten to her first.

  14. Timothy says:

    The Oregon wage and Washington minimum wage are actually pretty close together, Hawaii also has a pretty high one. It sort of fluctuates as to which is actually highest, but Oregon’s is always up there.

    With regard to government spending: in principle you’re right at a federal level (gee, massive debts anyone), and in principle there’s nothing wrong with the government running deficits to prop up spending when the economy turns down. That’s a basic sort of Keynesian manuver, and while the crowding-out it causes due to preassure on interest rates is bad, it’s not always a bad thing for the government to run deficts during a recession.

    HOWEVER, Oregon is one of many states with a balanced budget amendment to its constitution. Meaning that G is supposed to equal T by law. Hence, again, the push for tax-hikes in 2002 and 2003. From a policy standpoint this forces Oregon to either raise taxes or lower spending during downturn. Either of these exacerbates the problem and is what we call a procyclic policy. A Keynesian would say that the government should raise its expenditures and lower taxes during a down turn, thusly running some debt and boosting Y back up. This sort of policy can cause all sorts of problems in the long-run, as Keynesianism doesn’t really have a long-run outlook. A Monetarist would say expand the money supply in order to drive down real interest rates and stimulate short-run aggregate spending that way…with the caveat that in the long-run you’ll just cause inflation and really the best policy would be to do nothing. As for what an Austrian would say, well, I’m not familiar enough with the Austrian school of thought to really know. They don’t teach that at mainstream Econ departments, I think most of them think Austrians are crazy.

    Anyway, Oregon’s law is such that spending will have to drop or taxes will have to go up during recession or even mild business cycle corrections in order to keep G=T. I think this problem is made worse by the heavy reliance on the income tax, a notoriously cyclical income stream. As for my talk about the national income accounting identity, well, the government spending multiplier is 1/(1-MPC), where MPC = marginal propensity to consume which is always $6,500), you’ll be paying less because you’ll only be paying tax on what you spend.

    2) Needed to live expenditures could be exempted, don’t tax food purchased at grocery stores, say. Most states with sales tax do this, so it’s not a hard thing to accomplish.

    3) My initial thought was that Oregon’s income tax was flat, I was incorrect. The Oregon income tax rate is 5%$6,500…so basically anybody who is working to support him or herself pays the 9% rate. So, whereas before everybody was paying $.09 on every dollar they earned, now everyone is paying $.077 on every dollar of income (assuming that the MPC is .86 for simplicity sake). Effectively, you’ve lowered the tax rate 14% for the vast majority of workers. You’ve increased the rate on very low earners, but what gets ignored a lot of the time is that those folks are in all likelihood part-time and summer job holding students.

    4) This argument isn’t so much economic as principled: what right does the government have to your income? In my view, none. However, fiat money is a government service (albeit not through the states, but go with me for a second) and can therefore charge a usage fee for the use of its fiat currency. Also, with a consumption tax, you’re only being taxed on the money you use, you’re not being taxed simply for supporting yourself like a decent human being.

    Oregon’s tax being flat for anything that amounts to an annual income for somebody actually trying to work for a living makes the argument that a sales tax would disproportionately affect the poor fall flat. I’ll grant that people with incomes below $6,500 annually are going to get a raw deal, but lets face it: those are kids with summer jobs, people working part time to have something to do, and college students working part time at non-workstudy jobs. I’m pretty sure it falls flat anyway, because you’re going to be paying larger dollar amounts on big-ticket and luxury items anyway as sales tax is a percentage of price. Does a poor person buy a Lexus? I think not. It’s similar to the anti sin-tax argument: the poor buy booze and cigs, therefore taxing those is taxing the poor! My response to that will always be that maybe the poor shouldn’t be wasting money on those things.

    There’s also the corporate side of things, which is analogous to the consumer side. Plus a corporate tax is really just another tax on consumers because, gee, where do added corporate costs go? If you said “prices” you’re correct.

    Do I think any of this is politically tenable in Oregon? Nope, not at all. And a lot buy the trope that a sales tax hits the poor harder. Plus, regardless of potential benefit (especially something I haven’t mentioned, which is that out-of-state tourists would pay the sales tax and they certainly don’t pay Oregon income tax), there’s an ingrained objection to sales tax. Not having one has become part of the Oregon ethos and way of life, so I don’t think it’s bloody likely even if it would probably be the best solution for Oregon’s cyclical vulnerability.

    Dan: Am I making up my word quota, Mr. 10,000 word legal posts? Is this esoteric and boring enough? Wait…I think law is fascinating, I guess I’m the only boring one.

  15. Clint T. says:

    Hey Timothy.. what about the idea that a sales tax gets away from the whole sustainable living idea that so many of the morons in Oregon’s congress are pushing. And by ‘gets away’ I mean in comparison to the income tax – you know, the whole “the rich aren’t as effected by a sales tax…” argument.

    I mean, your explanation was handy-dandy above for the point you’re trying to prove, but you quickly dismissed the biggest part of why the income tax is benefical over the sales tax.. something that you’ll have to address if you’re going to fight the good fight.

    I think you’re also wrong with, “When the economy expands and income tax revenues go up, government spending goes up, blah blah multiplier effect, blah blah blah Y=C+I+(G-T)+NX, blah blah total incomes rise. When the economy takes a downturn the exact opposite happens.”

    Namely, I don’t think government spending really goes down during the ‘downturn.’ (j/k)

    I also thought Oregon had *the* highest minimum wage in the nation.. I know my city of S.F. here passed some super crazy ordinance that only applies to the city itself.. making the minimum wage something like $10/hr *if you work more than TWO hours a week* – but as far as the state goes.. who actually leads?

    Don’t get me wrong, I agree with some of what you’re saying. Minimum Wage should be lowered to the federal level, or eliminated all together, however, I’m not sure I agree with the sales tax vs. income tax on the basis of the *consumer*. Besides, I wouldn’t have any reason to go to Oregon and make my car purchase if you laid a sales tax on me.

  16. Tyler says:

    Happy birthday, man. We’ll pool our resources together and get you something nice. How does a Russian mail order bride sound?

  17. Timothy says:

    Washington doesn’t have state income tax, that’s part of the difference.

    Dan: Thanks! I’ll be sure to misspell more stuff later and try to post things that are longer and more esoteric.

  18. Casey says:

    They have sales tax in Washington, and they might actually be worse off than Oregon. What’s up with that? I’m no expert on OHP, but I know that there are many cases where medicade doesn’t pick up the slack, specifically regarding women’s reproductive health issues. I think sales tax sucks, personally.

  19. Danimal says:


    Happy birthday! Your post wasn’t really that long, by Tim standards, but you made up for it in the comments.

    Also, a special birthday nitpick: it’s spelled “endemic.”

  20. Timothy says:


    The primary idea of a shift toward a sales tax is that it would stabilize state revenues. Income taxes are notoriously prone to cyclical fluctuation, and as such inspire a boom/bust sort of dynamic in state coffers. Coupled with the state’s balanced-budget amendment this forces the state to persue policy that exacerbates the business cycle (pro-cyclic policy). When the economy expands and income tax revenues go up, government spending goes up, blah blah multiplier effect, blah blah blah Y=C+I+(G-T)+NX, blah blah total incomes rise. When the economy takes a downturn the exact opposite happens.

    Oregon’s income is ~80% from the personal income tax with the rest being made up of gas taxes (not particularly cyclical), property taxes (also not typically prone to cyclical fluctuation), lotter dollars, and fees. Such heavy reliance on one source of income, a source known to have a rather large variance at that, I think is a major contributor to Oregon’s budget problems.

    Standard microeconomics predicts that an income tax is less distortionary to consumer preference than an equal-yield sales tax, but that’s in a perfect world. In the real world we have income tax deductions and ways for the individuals to control their taxable income.

    Business development is going to take some time, because Oregon is not a particularly friendly place to do business. There are fairly strict environmental regulations and the income tax doesn’t help: especially with Washington just north. Portland, for instance, doesn’t really provide anything in terms of business that Seattle can’t AND Portland has an income tax.

    I agree that spending cuts should be the first concern, and there are a lot of easy places to start. In the issue I linked to in my post there are some ideas in my Meltdown article. My primary suggestion is the OHP: it’s redundant with medicaid and costs Oregon taxpayers $1,000,000,000 every biennium. That amount is only going to go up as the OHP is being expanded to 200% of the poverty level and my calculation included the one-time tobacco settlement money that has now been used. Tennessee just nixed TennCare because it was bankrupting the state, and I think Oregon could learn well from that lesson. I think it’s unlikely that the legislature will learn, but here’s hoping.

    I also think lowering the minimum wage would be a good place to start to encourage business growth, or at least removing the CPI index from the law. The Oregon minimum wage is among the highest in the country, the minimum wage disproportionately benefits middle-class teenagers, and the CPI is known to over-state inflation by as much as two percentage points. Further, the CPI used for indexing is the Urban National CPI For All Goods. First of all, using the national CPI assumes that Puchasing Power Parity holds in the short-run across states (it doesn’t). That’s a fatal error in its own right, coupled with Oregon being at least a 50% rural state and there are even more issues with using that particular measure of inflation.

    In short, I think that a tax shift toward a more stable source of revenue couldn’t hurt Oregon’s budgetary situation and, ideally, I think it’d be good to eliminate or substantially reduce the income tax. Other more business-friendly initiatives like reducing the regulatory burden and minimum wage would help lure new business and help Oregon’s lagging economy.

  21. Ian says:

    Happy Birthday!

    I wouldn’t call the article “fascinating,” I’d call it “disturbing.” McCain/Feingold has been an utter disaster for American citizens and a complete victory for the scum that calls itself the US Congress. The ~90% incumbency rate will only continue to go up, and consequently the members of Congress have no reason to get rid of this abomination.

    This latest development is especially disturbing.
    Then what’s the real impact of the judge’s decision?
    The judge’s decision is in no way limited to ads. She says that any coordinated activity over the Internet would need to be regulated, as a minimum. Basically, the government is putting itself in a position to regulate political organizations and political speech on the Internet. The OC Blog would now be regulated by the federal government, for instance.

    Also, what do you have against Oregon’s lack of sales tax? I agree wholeheartedly about self-serve gas, but I would argue for spending cuts before tax increases or shifts (this can be applied to the federal government’s current fiscal deficit as well.) Oregon’s legislature has been pissing money away for quite some time, and it’s coming back to bite us. Will shifting the tax burden by implementing a sales tax really help that much? And will business growth be noticably increased by such a tax shift?

  22. Marla says:

    Happy Birthday, Tim! Didn’t read your post AT ALL, but I’d rather buy you a birthday beer and pretend to listen while you explain it to me in person : )

Sorry, the comment form is closed at this time.